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Chinese-funded oil project in Costa Rica halted amidst flood of criticism

Gervase Poulden

Readinch

Controversial oil refinery project will be a blow to Costa Rica becoming the first carbon neutral country in the world by 2021

A proposed US$1.5 billion project to upgrade Costa Rica’s only existing oil refinery has been halted following accusations of foul play in the evaluation process. The decision comes after weeks of criticism of the project on environmental grounds. 

The venture is a joint operation between the Costa Rican Petrol Refinery, Recope and China National Petroleum (CNP), part-financed with a US$900 million loan from the Chinese Development Bank. Recope has said that the refinery could save Costa Rica up to US$41 million a year, and that it is necessary to meet the needs of the transport sector.
 
But critics have attacked the idea as a move in the wrong direction for a country with ambitious carbon reduction targets - Costa Rica is aiming to become the first carbon neutral country in the world by 2021 - as a recent report in online Costa Rican newspaper CR Hoy shows.
 
Now it is not only national experts who are speaking out about the environmental problem that the new refinery will bring to our country, international authorities also recognise the contradiction that this project represents.
 
The coordinators of the Climate Change Action Network for Latin America said there are many other alternatives [to the project] that would help ensure carbon neutrality, even if those implicated a change in the electricity network and energy consumption, and that they hope that all these alternatives have been evaluated precisely before choosing such an expensive process that only promotes the consumption of more fossil fuels.
 
Despite the widespread criticism, the government approved the project in May, and most government ministers have voiced their support publicly for it. Environment and Energy Minister René Castro, declared that there is ‘no other viable solution to the country’s transport problems’.
 
This situation changed completely, however, last Thursday when the General Controller of the Republic, the body responsible for reviewing public spending, ordered that project be halted, for reasons explained in a report that appeared in the Costa Rican paper Prensa Libre. 
 
For this project, Recope and CNPCI together created a company called Soresco. The controller determined that there existed a breach of clause 5.02 of the Joint Company Agreement… because the company that carried out the feasibility study has a relationship with the Chinese petroleum company, which is prohibited by Costa Rican law.
 
The controller also identified a series of deficiencies in the study… the most serious being that “the profit margin of 16.28% presented in the study might have been overestimated, because it does not include costs relevant to the refinery, whist all the income flows are included.
 
The accusations of irregularity could potentially be damaging for the parties involved. The President of Recope resigned immediately after the announcement and now appears to have left the country, as reported by Prensa Libre in another article from last Saturday.
 
When the news came to light Thursday afternoon, the Environment and Energy Minister, René Castro explained that Villalobos was outside of Costa Rica, although some rumours indicate that the ex-President of Recope is indeed inside the country. Nevertheless, responding to questioning from this publication, Recope’s spokesperson José Mario Guzmán denied this information and claimed that Villalobos was indeed abroad.
 
Thus far the Chinese state has stood by the company, despite saying that it does not wish to get involved in a dispute involving a private company. The news agency EFE reported that Chinese Foreign Ministry spokesperson Hua Chunying said that 
 
The Chinese government hopes for a quick solution between Recope and the Chinese petroleum company that will allow them to overcome the setback that the project of expansion and modernisation of the refinery suffered this Thursday.
 
The whole episode threatens to damage China’s reputation in the country that remains its largest trading partner in Central America.

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